Buy Here Pay Here (BHPH) dealerships have carved out a unique niche in the used car market by offering in-house financing to customers with poor credit or limited financial means. While these businesses can be profitable, they also face a range of challenges that make running them a tough endeavor. In this blog, we’ll explore 10 reasons why operating a BHPH dealership can be so challenging. It’s a road less traveled, but with the right strategies, tools, and perseverance, it can lead to success.

1. Credit Risk: BHPH dealerships take on significant credit risk by providing loans to customers with less than stellar credit history. Managing and mitigating this risk is a constant challenge to ensure the profitability and sustainability of the dealership.
2. Loan Defaults and Collections: BHPH dealers often face a higher rate of loan defaults compared to traditional lenders due to primarily working with the subprime market. Dealing with delinquent payments and implementing effective collections strategies can be a complex and time-consuming process.
3. Regulatory Compliance: BHPH dealerships must navigate ever-changing regulations related to lending practices, consumer protection, privacy, and fair credit reporting. Complying with these regulations is crucial to avoid legal issues and penalties.
4. Inventory Management: Maintaining a balanced and profitable inventory is challenging for BHPH dealers. Ensuring a good mix of vehicles that cater to the target market, managing aging inventory, and addressing repossessed vehicles all require careful inventory management.
5. Technological Solutions: BHPH dealerships may face hurdles in adopting and integrating robust technological solutions. Implementing efficient loan management systems, customer relationship management software, and automated processes can be a significant investment and operational challenge.
6. Profit Margins: BHPH dealerships typically operate on lower profit margins due to higher credit risks, loan defaults, and vehicle depreciation. Finding ways to optimize operational efficiency and maximize profitability is a constant concern.
7. Vehicle Quality and Reliability: Maintaining a reliable inventory of vehicles is essential for BHPH dealerships. Ensuring that vehicles are mechanically sound, have clean titles, and can withstand the demands of subprime borrowers is crucial to avoid excessive maintenance costs and customer dissatisfaction.
8. Marketing and Lead Generation: Attracting qualified leads and effectively marketing to the target audience can be a challenge for BHPH dealers. Developing cost-effective marketing strategies and establishing a strong online presence is essential to drive traffic and sales.
9. Customer Retention and Satisfaction: Providing exceptional customer service and fostering long-term relationships with customers can be challenging in the BHPH industry. Overcoming the stigma associated with subprime lending and ensuring a positive customer experience is vital for repeat business and referrals.
10. Economic Factors: BHPH dealerships can be sensitive to economic fluctuations, as their target market often faces financial instability. Changes in interest rates, unemployment rates, and overall economic conditions can impact the ability of customers to make payments and the dealership’s profitability.

While the items above may seem difficult to take on, the best tool to tackle each of these is a quality Dealer Management System. An al la carte DMS, such as Deal Pack, allows you to choose which aspects you feel present the greatest challenge to your business and tackle them head on. Integrations such as credit pulls with 700Credit, Using cyclCRM to help with customer relationships, a robust collections module that works with multiple GPS devices, or in-depth sales and inventory reporting are just a few items Deal Pack offers to help you quickly narrow in on any weaknesses in your processes and address them right away.

To learn more about Deal Pack and its many features, please call 800-526-5832 or email support@abcoa.com